Opinions please

[Tiptop]

I discovered this great forum researching the feasibility of early retirement. This is my situation: 51 y.o attorney in high stress practice area. Wife is 47 y.o. druggist working p.r.n. Taxable acct.: 4.5 mil. IRA's: 1.5 mil. House paid--no mortgage; 2 children: 1 2nd yr. college; other in high school. Health ins. cost is $12,000.00/yr. I would like to retire but concerned about long drawdown period at my and spouse's age. Once children are done with college wife and I would like to travel. This would be our only extravagance. Otherwise we live modestly. Opinions?

 

[Meadbh]

Welcome to the forum! Some of my best friends are lawyers....really!

Obviously with a Net Worth of $6 million and change, plus a paid off home, you have a lot of choices. A key exercise at this stage is to document your annual expenses, in detail, for at least 1-2 years. If you pay mostly by credit card and don't have too many financial institutions, you should be able to reconstruct your expenses for the past couple of years without too much work. This usually produces a Eureka moment or two. "We spend that much on cable/restaurants/business attire and drycleaning/a boat/charity/school fees, etc.??" Then you can project how that would be different in ER. What income will you really need after ER? Then you can try out scenarios in FireCalc and other calculators.

And have a look at this thread:

http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[Fishingmn]

Welcome. Sounds like you've done well.

Need to know more about anticipated expenses/purchases in retirement to comment on any plan. Do you track expenses or have a good handle on expected outlays?

 

[Gumby]

Sorry, we don't do opinions here.

Welcome to the forum. As others have said, whether $6M is enough is a direct function of how much you spend. Reduce your withdrawal rate to 3% (to be safe due to your relatively young age) and you can draw $180K per year before taxes. Say about $150K after tax. If your spending is less than that, you ought to be fine.

 

[Tiptop]

I haven't done any expense tracking--that's obviously essential. I don't wish to access the IRA until RMDs, so until SS for wife and I at full age we would look to the taxable acct. exclusively. It is throwing off div. and interest income invested mostly in blue chips at approx. 180k per yr. which is not far from our net working income--esp. now since wife has curtailed her work. But yes, I suppose I should get a better idea of expenses.

 

[Meadbh]

Sorry, we don't do opinions here.

Lawyer joke, eh?

 

[pb4uski]

.....Opinions?

I would think of it this way. You have ~$6.0 million. Let's carve out $300k for college costs, so that is $5.7 million. You're young, so rather than a 4% WR use 3% WR. If you can live on $171k (3% of $5.7 million) including living expenses, taxes, health insurance and health care costs, periodic car replacements, periodic major home repairs, etc. then you are good to go. Keep in mind that the $171k would be increased each year for inflation.

You can get a good idea on you taxes in retirement by doing a pretend tax return taking out you earnings and making any other appropriate adjustments. For those of us that ER and are living off of taxable accounts, typically our tax bill plummets.

Another common thing is that once we retire we have time to work a bit on examining expenses for cost saving opportunities. So rather that the expensive unlimited minutes cellphone plan that I had when I was working, I now have a modest pay-as-you-go plan that is only $10/month. We dropped our ~$30/month landline and now have Ooma that costs less than half that. You get the idea.

 

[Fermion]

It sounds like your portfolio is on average gaining more per year than your working income. Considering that you must be saving some of that working income, I am guessing you could safely retire yesterday. You might not be able to afford a trip to the ISS but I think you could live well on $180,000 a year if you have been earning around that and still manage to save up 6 million.

 

[Tiptop]

Yes, that's true a good portion of working income has been diverted to savings...and no a trip to the space station is not on the bucket list. Lol. The taxable acct would only need to carry all of the load until SS and RMDs, barring any major accident, illness etc. Pb4's point is also well taken-- a 3% WD rate is most prudent at this age. Would you suggest 3% on the taxable since that's the only acct actively to be drawn from?

 

[Rothman]

Tiptop congratulations on your accomplishment, you've saved enough to stop working and completely enjoy your life including the trips based on a 3% SWR. I like your idea of not touching retirement accounts until later, live off taxable accounts, but you will want to look at managing income for tax rates and any healthcare subsidies offered to lower income families. Given your age the real risk to your plan is sequence of returns, meaning if in the year you retire we start an extended period of bad market returns extending year after year. Later in retirement even these bad sequences won't matter since your assets will have outgrown your withdraws and the duration needed is shorter. You will have two choices in such a bad streak, lower expenses like cutting out trips etc., or go back to work. Again congrats on great planning.


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[hnzw_rui]

Yes, that's true a good portion of working income has been diverted to savings...and no a trip to the space station is not on the bucket list. Lol. The taxable acct would only need to carry all of the load until SS and RMDs, barring any major accident, illness etc. Pb4's point is also well taken-- a 3% WD rate is most prudent at this age. Would you suggest 3% on the taxable since that's the only acct actively to be drawn from?

With $4.5M in taxable accounts, you probably get a significant amount in dividends. Perhaps you could just skip reinvesting dividends and see if they're enough to cover expenses?

 

[Tiptop]

True, hnzw, presently 182k, with a mix of reits, mlps, Utes, c-corps, preferreds, and a few bonds. Most of the stocks up their pmts annually. The yield on the port. is about 4%. Ideally we would live on the divs-interest, reserving some for re-investing and taxes.

 

[Katiek]

Are you really eager to retire, or to just not be doing the same high stress job you are currently doing? Your savings gives you a lot of freedom to make choices. As others have mentioned, if you want to retire, the main thing is to have a good handle on spending - although from the info posted it sounds like you're good.

Another question is how does your wife feel about your potential retirement? Would she want to continue working, or would she want to retire too?

And welcome!

 

[Tiptop]

Hi Katie, my wife just a couple of months ago stepped away from regular work, and she's very happy working now on a fill in basis at the local pharmacy...approx. 3-4 days/mo. Happy wife happy life, right? You're right about me looking at other options, one being to reorient my work to less stressful, demanding areas, perhaps transitioning for a period of time from the working world into retirement...food for thought. Thanks.

 

[Bamaman]

As an attorney, there are so many less stressful ways to make a living. We understand how it's easy to get completely burned up in your field.

At your age with a kid in high school, full retirement for yourself and your wife really might not be in the cards.

I suggest you go a different direction in your career--easier and simpler field of law. Then reassess where you are when the kid gets about halfway through college.

It's not always a matter of money. It's so easy to get bored when you're very young retired. The money (hopefully) will be there for you when you're really ready to "go to the house."

 

[pb4uski]

.....Pb4's point is also well taken-- a 3% WD rate is most prudent at this age. Would you suggest 3% on the taxable since that's the only acct actively to be drawn from?

The 3% would apply to the entire $5.7 million, not just the taxable account. The "extra" withdrawals in the taxable account would be offset by the uninhibited growth of the tax-deferred account.

Keep in mind a couple things. First, the 3% is only a guideline, if over the first 5-10 years investment results are good then one can do more and if investment results are poor then it would be prudent to do less. The major risk is sequence of returns risk, where investment results are poor/negative in the early years of retirement and the combination of the poor/negative investment results and withdrawals stress your nestegg beyond the point where it can support you for the rest of your life.

However, my simple example ignored that you have SS coming on line. The addition of SS could mean that even a higher WR in the early years (before SS starts) will still be ok. Many of us who retire early have a higher WR prior to SS starting.

You should probably look at Firecalc. If someone has a 50 year retirement starting with $5.7 million, no SS and a 60/40 portfolio, then the maximum with starting withdrawal with 100% success would be ~$186k, but if you introduce in addition SS starting at 70 of $30k a year (in 2015 dollars) for each of you then the starting withdrawal increases to $204k. The $186k suggests that a ~3.3% WR is "safe" and that since SS will reduce withdrawals needed in later years that it would increase the initial year withdrawal to $204k (which equates to a ~3.6% WR).

 

[Tiptop]

Thanks Pb4 that certainly puts things in a more positive light.

 

[Brat]

Work is both an economic and social activity. Many couples have territorial issues to work through upon retirement. I predict you will need to do something to keep yourself occupied or you will drive your wife nuts. Look for a practice area that isn't so demanding even if you need a few professional development classes to get up to speed.

Lots of high net worth folks 'retire' to do something on their life's bucket list.

Share with your wife the fact that the practice is not fun any more. Share with her that you want to make a change and ask her to work with you to do that.

I think financially it is doable and if you augment your investment income with some professional income you will do very well.

 

[Katiek]

I've had a number- of lawyer friends start new jobs recently - typically as a transition to retirement rather than for career advancement. Some remained in different areas of the law, but a few went into administration at not for profit entities in which they'd been actively involved. Their new jobs have their own kind of stress, but the new challenges are very different from their prior jobs, and they have been really enjoying their new work situations so far.

I think your significant savings and LBYM have given you a lot of options whether you want to retire completely or look for a less stressful or part time job.

 

[mpeirce]

... Taxable acct.: 4.5 mil. IRA's: 1.5 mil. ...

One more thing to consider is ROTH conversions if your taxes are low enough now (after you retire, but are still "young"). If it works for you, you have plenty of time to let the ROTHs grow for many years and reduce the mandatory RMDs later in life.

 

[Tiptop]

As appealing as leaving the "rat race" immediately is at the moment, transitioning into retirement over time by, in my case, making changes in the type of work I accept may be the best course. I need to have a sit down with my spouse about this plan--we already did that for her late last year and she has successfully and happily made the transition. Seeing how this move has benefited her has inspired me to start thinking about it as well.

I'm not a tax pro but on the Roth conversion issue it appears that my tax bracket would still be high with passive income even in retirement so do you think that I can still take advantage of converting?

Finally, every response on this thread has been extremely useful and thought provoking...thanks to all.

 

[pb4uski]

Roth conversion would only be worthwhile if the tax rates on the conversion are lower than the tax rates that you would expect to pay if you don't convert and take withdrawals later.

It works good for me. My marginal rate on conversion is about 7% and would likely be 25% if I didn't do Roth conversions, but I suspect the advantage might not be much for you but it is still worth giving some thought to.